MILAN: Italy's economy contracted for the first time since 2009 in the third quarter under the weight of a deep debt crisis and tough austerity as a recession looms, official data showed on Wednesday.
Gross domestic product (GDP) shrank by 0.2 percent in the quarter after growing by 0.1 percent in the first quarter and 0.3 percent in the second quarter, with businesses reporting a sharp slowdown in Christmas sales.
The contraction was worse than had been expected as analysts polled by Dow Jones Newswires had predicted a shrinkage of only 0.1 percent.
Output however grew by 0.2 percent in the quarter on a 12-month comparison.
The Istat data agency said imports fell by 1.1 percent and exports by 1.6 percent between July and September, while consumption went down by 0.3 percent and investments by 0.8 percent -- the latest in a rash of negative results.
"We are in recession," Economic Development Minister Corrado Passera said last week, as the government prepares to implement a draconian austerity plan of tax increases and pension reforms to balance the budget by 2013.
The most widely used definition of a recession is two consecutive quarters of contraction, which means the economy would have to shrink again in the fourth quarter for Italy to be officially considered in recession.
But Italy slipping into recession is widely considered as inevitable.
"There is no longer any doubt," said Giuliano Noci, a professor at the MIP business school in Milan.
Fabio Pammolli, director of the Cerm research centre, said three austerity packages adopted by Italy this year were to blame.
"They have had a recessionary effect," he said, adding that "Italy is going primarily for tax increases, which weigh on consumption and show investors the country is not able to sufficiently reduce the weight of the state."
Prime Minister Mario Monti's new government is forecasting that output will shrink by 0.4 percent in 2012 but others are far more pessimistic.
The business federation Confindustria is predicting a 1.6-percent contraction and the bank association ABI is predicting minus 0.7 percent.
The government says it expects growth to resume in 2013 with 0.3-percent expansion but critics say there is little in the latest package of austerity measures due to be adopted this week that could revive the economy.
Noci said it had been "a mistake" for Italy to promise the European Union that it would restore a balanced budget by 2013. "We could have accepted a lower deficit in order to free resources for growth," he said.
Monti has stressed that Italy faces a Greek-style financial crisis if the austerity measures are not formally approved by parliament.
Italy has been stuck in a low-growth, high-debt spiral for years and a recent plunge in investor confidence has pushed its borrowing rates to record highs, raising concern that this will add a further burden to the economy.
The rate on 10-year government bonds rose on Wednesday to 6.676 percent, compared to 6.571 percent on Tuesday.
Fears of an imminent debt blow-up when the rate recently hit as high as 8.0 percent have however receded since Monti replaced Silvio Berlusconi last month.
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